RBI Monetary Policy 2025, Repo Rate Reduced, Impact on Indian Economy
RBI’s December 2025 monetary policy marks a decisive shift into a rare “goldilocks” phase of strong growth with ultra-low inflation, allowing a 25 bps repo cut to 5.25% while retaining a neutral stance. This eases borrowing costs, boosts liquidity and supports investment, with FY26 GDP forecast raised to 7.3% and CPI inflation cut to just 2%.
Key decisions of RBI MPC 2025
The Monetary Policy Committee met from 3–5 December 2025 and unanimously cut the repo rate by 25 bps to 5.25%, taking cumulative 2025 cuts to about 125 bps from 6.50% earlier in the year.
The SDF rate is now 5.00%, and the MSF / Bank Rate are 5.50%; the stance remains “neutral”, giving RBI flexibility to pause or cut further depending on data.
Growth and inflation outlook
RBI upgraded real GDP growth projection for FY25–26 to 7.3% from 6.8% earlier, reflecting robust domestic demand, government capex and improving private investment.
CPI inflation forecast for FY25–26 was slashed to 2.0% (down 60 bps), with near-term quarters even below 1% thanks to easing food prices and limited core pressure, giving RBI room to support growth.
Why RBI cut rates now
The combination of record-low inflation and strong but slightly moderating growth gave RBI the comfort to prioritize sustaining momentum without breaching its 2–6% inflation band.
External conditions also turned more favourable: global central banks have shifted to easing, oil prices have softened, and RBI is keen to pre-empt any growth slowdown amid patchy global demand.
Liquidity measures and financial conditions
Alongside the repo cut, RBI has prepared to inject liquidity of up to roughly USD 16 billion equivalent via government bond purchases (OMOs) and forex swaps to keep money markets well supplied.
These actions lower bond yields, ease systemic funding costs for banks and NBFCs, and help anchor financial stability even as the rupee has faced bouts of weakness.
Impact on banking system and credit
For banks, lower policy rates compress funding costs over time and support loan growth, but may also pressure net interest margins as lending rates reset faster than deposit costs.
Credit expansion is expected to remain healthy, with non-food bank credit and capacity utilisation already improving, signalling that both corporate and retail borrowers are ready to absorb cheaper credit.
Effect on households and consumption
Home, auto and personal loan EMIs are set to fall as repo-linked and MCLR-linked rates transmit, improving affordability and freeing disposable income for consumption.
While borrowers gain, savers in fresh fixed deposits and similar products may see lower returns, nudging long-term households towards mutual funds, bonds and equities for better inflation-adjusted performance.
Sector-wise impact on the Indian economy
| Segment / Sector | Expected Impact from 2025 Policy | Key Channel |
|---|---|---|
| Real estate & housing | Strong positive | Cheaper home loans, improved affordability and launches. |
| Auto & consumer durables | Positive | Lower vehicle and consumer EMIs, faster demand recovery. |
| Banks & NBFCs | Net positive | Higher credit growth and treasury gains vs. some NIM pressure. |
| Infrastructure & capex | Positive | Lower project finance cost and supportive growth outlook. |
| Debt markets | Positive | Lower yields, price gains in long-duration and gilt funds. |
| Households / MSMEs | Positive | Cheaper working capital and term loans, better cash flows. |
Broader macro implications
The policy reinforces confidence that India can sustain high-single-digit real growth with inflation at or below target, making the economy attractive for both domestic and foreign investors.
Risks remain from global volatility, crude price spikes or sudden capital outflows, but the neutral stance and strong FX reserves give RBI space to respond quickly if conditions change.
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